Arrium plunges deep into the red

Steelmaker and mining products group Arrium has posted a heavy $447 million loss for the December half, significantly worse than the $74 million loss posted a year earlier in the wake of the heavy write-down of assets.

Revenue fell to $3.32 billion from $3.55 billion.

Last week the group wrote down the value of assets by $474 million which weighed heavily on today's results. Stripping out the write-down, Arrium said it posted a net underlying profit of $51 million for the half.

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Earnings before interest, tax, depreciation and amortisation (EBITDA) rose to $230 million from $196 million a year earlier, benefiting from the group's exposure to mining products in particular.

The result at this level was significantly ahead of some analyst expectations of an EBITDA profit of the order of $170 million.

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Arrium shares finished down 2 per cent to $1.235.

Domestic market 'weak'

Arrium managing director Geoff Plummer was downbeat on the prospects for a revival in domestic steel demand, while admitting the group has adapted to the strong Australian dollar.

The domestic market continues to be pretty weak," he told journalists today, pointing to the low level of residential sector demand "which is still at cyclical lows".

With the strong currency, "we are starting to adapt to it", he said, pointing to the fact that the steel division is at cash break even, and not far off being at a break even in terms of earnings.

"I don't see a near term upside in the domestic market," he said. "I think it will be tough for the balance of the financial year. We've got to gear the business for things to continue (to be) tough.''

Over the past 12 months, the company confronted severe headwinds in the steel division, he said, from both the weaker steel price coupled with the strong dollar.

Arrium is profiting from the strength of its mining products division, which boosted earnings amid ongoing volume increases coupled with the anticipation of a pick up in iron ore prices which, with an increase in export volumes should boost earnings of this division significantly through the balance of the year.

Mr Plummer would not comment on the status of negotiations to offload the group's tube and pipe unit, which accounted for the bulk of last week's $474 million asset write-down.

Arrium was "investigating prospects for selling that business," Mr Plummer said. "I don't plan to speculate on the status of that."

Strong iron ore, better steel

While pointing to the strong performance of its iron ore mining and the mining products divisions, Arrium noted the "significant improvement" in its steel business despite the ongoing weakness in the global steel market.

Arrium, the former OneSteel, said the steel division will remain under pressure through the rest of the financial year, amid generally weak demand and soft product prices.

However, the mining products unit will continue to perform well, it said, while the mining division will benefit from the ongoing recovery in iron ore prices.

The company refrained from providing any specific earnings guidance, although it said it did expect earnings to be skewed towards the second half.

Lower iron ore prices had a $75 million to $85 million impact on net profit in the mining business, compared to the previous corresponding period, Mr Plummer said.

‘‘While further volatility is possible, we anticipate iron ore prices for the balance of this financial year to continue to be above the average level for the first half,’’ the company said in a statement.

‘‘For the OneSteel steel businesses, we expect continuation of the difficult external environment, including a high Australian dollar and generally weak domestic demand,’’ the company said.